E-Business: Supply Chain
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E-Business: Supply Chain
Table of Contents
I. Supply Chain Basics………………………………………......................................3
a) The Traditional Supply Chain………………………………………………….……….3
b) Traditional Supply Chain “Push” Model…………………...……………………….3
c) Ecommerce Supply Chain “Pull” Model ……………..…………………….………4
d) Impact of E-commerce on Supply Chain Management..…………….……….4
e) Exchanging Data is Critical………………………………………………………………4
II. Supply Chain Management……….……………………………………………………5
a) Supply Chain Innovators………………………………………………………………..5
b) The Changing Face of Business……………………………………………………...5
c) Why the Internet?............................................................................9
d) Growth of E-Marketplaces………………………………………………………………6
e) E-Marketplaces’ Business Model Needs Change………………………………..7
f) The Rise of the Private E-Marketplace……………………………………………..8
III. Distribution and Fulfillment Strategies……………………………………………
a) Determining Your Distribution Model by Volume…………......................
b) Choosing the Best Shipping Model………………………………..…………….………
c) Inventory Control Management Systems………….…..……………………………..
d) Packing and Getting Your Product out the Door…………………………………….
e) Shipping to International Destinations………………………………………………..
f) Quality Assurance and Consumer Protections………………………………………
I. SUPPLY CHAIN BASICS
A production supply chain refers to the flow of physical goods and associated
information from the source to the consumer. Key supply chain activities include
production planning, purchasing, materials management, distribution, customer service,
and sales forecasting. These processes are critical to the success of any operation
whether they’re manufacturers, wholesalers, or service providers.
Electronic commerce and the Internet are fundamentally changing the nature of supply
chains, and redefining how consumers learn about, select, purchase, and use products
and services. The result has been the emergence of new business-to-business supply
chains that are consumer-focused rather than product-focused. They also provide
customized products and services.
a) The Traditional Supply Chain
The traditional supply chain often includes more than one company in a series of
supplier-customer relationships. It is often defined as the series of links and shared
processes that involve all activities from the acquisition of raw materials to the delivery
of finished goods to the end consumer. Raw materials enter into a manufacturing
organization via a supply system and are transformed into finished goods. The finished
goods are then supplied to customers through a distribution system. Generally several
companies are linked together in this process, each adding value to the product as it
moves through the supply chain.
Effective supply chain management is the act of optimizing all activities throughout the
supply chain, and it is the key to a competitive business advantage. Consequently, an
organization’s ability to gain a competitive advantage is heavily dependent on
coordination and collaboration with its supply chain partners. Yet, even today, a typical
supply chain is too often a sequence of disconnected activities, both within and outside
of the organization. To remedy this situation, it is important that an organization and its
suppliers, manufacturers, customers, and other third-party providers engage in joint
strategic planning and operational execution with an eye to minimizing cost and
maximizing value across the entire supply chain.
b) Traditional Supply Chain “Push” Model
Companies have In the traditional supply chain model, the raw material suppliers are at one end of the
there is an ongoing supply chain. They are connected to manufacturers and distributors, which are in turn
Shift in the balance connected to a retailer and the end customer. Although the customer is the source of
of power the profits, they are only part of the equation in this "push" model. The order and
in the commerce
model – promotion process, which involves customers, retailers, distributors and manufacturers,
from suppliers to occurs through time-consuming paperwork. By the time customers' needs are filtered
through the agendas of all the members of the supply chain, the production cycle ends
up serving suppliers every bit as much as customers.
c) E-commerce Supply Chain “Pull” Model
Driven by e-commerce’s capabilities to empower clients, many companies are moving
from the traditional "push" business model, where manufacturers, suppliers, distributors
and marketers have most of the power, to a customer-driven "pull" model. This new
business model is less product-centric and more directly focused on the individual
consumer. To succeed in the business environment, companies have recognized that
there is an ongoing shift in the balance of power in the commerce model, from suppliers
In the pull model, customers use electronic connections to pull whatever they need out
of the system. The old "push" model involves a linear flow of commerce that keeps
many members of the supply chain relatively isolated from end users. With the new
customer-driven pull model, it is no longer a linear process. The new supply chain has
each participant scrambling to establish direct electronic connections to the end
customer. The result is that electronic supply-chain connectivity gives end customers the
opportunity to become better informed through the ability to research and give direction
to suppliers. Ultimately, customers have a direct voice in the functioning of the supply
E-commerce creates a much more efficient supply chain that benefits both customers
and manufacturers. Companies can better serve customer needs, carry less inventory,
and send products to market more quickly.
d) Impact of E-Commerce on Supply Chain Management
E-commerce impacts supply chain management in a variety of key ways. These include:
makes it Cost efficiency: E-commerce allows transportation companies of all sizes to exchange
customers to do cargo documents electronically over the Internet. E-commerce enables shippers, freight
business with forwarders and trucking firms to streamline document handling without the monetary
companies. and time investment required by the traditional document delivery systems. By using e-
commerce, companies can reduce costs, improve data accuracy, streamline business
processes, accelerate business cycles, and enhance customer service. Ocean carriers
and their trading partners can exchange bill of lading instructions, freight invoices,
container status messages, motor carrier shipment instructions, and other documents
with increased accuracy and efficiency by eliminating the need to re-key or reformat
documents. The only tools needed to take advantage of this solution are a personal
computer and an Internet browser.
Changes in the distribution system: E-commerce will give businesses more
flexibility in managing the increasingly complex movement of products and information
between businesses, their suppliers and customers. E-commerce will close the link
between customers and distribution centers. Customers can manage the increasingly
complex movement of products and information through the supply chain.
Customer orientation: E-commerce is a vital link in the support of logistics and
transportation services for both internal and external customers. E-commerce will help
companies deliver better services to their customers, accelerate the growth of the e-
commerce initiatives that are critical to their business, and lower their operating costs.
Using the Internet for e-commerce will allow customers to access rate information, place
delivery orders, track shipments and pay freight bills. E-commerce makes it easier for
customers to do business with companies: Anything that simplifies the process of
arranging transportation services will help build companies' business and enhance
shareholder value. By making more information available about the commercial side of
companies, businesses will make their web site a place where customers will not only
get detailed information about the services the company offers, but also where they can
actually conduct business with the company.
Ultimately, web sites can provide a universal, self-service system for customers.
Shippers can order any service and access the information they need to conduct
business with transportation companies exclusively online. E-commerce functions are
taking companies a substantial step forward by providing customers with a faster and
easier way to do business with them.
Shipment tracking: E-commerce will allow users to establish an account and obtain
real-time information about cargo shipments. They may also create and submit bills of
lading, place a cargo order, analyze charges, submit a freight claim, and carry out many
other functions. In addition, e-commerce allows customers to track shipments down to
the individual product and perform other supply chain management and decision
support functions. The application uses encryption technology to secure business
significantly Shipping notice: E-commerce can help automate the receiving process by
electronically transmitting a packing list ahead of the shipment. It also allows companies
department to record the relevant details of each pallet, parcel, and item being shipped.
efficient. Freight auditing: This will ensure that each freight bill is efficiently reviewed for
accuracy. The result is a greatly reduced risk of overpayment, and the elimination of
countless hours of paperwork, or the need for a third-party auditing firm. By intercepting
duplicate billings and incorrect charges, a significant percent of shipping costs will be
recovered. In addition, carrier comparison and assignment allows for instant access to a
database containing the latest rates, discounts, and allowances for most major carriers,
thus eliminating the need for unwieldy charts and tables.
Shipping Documentation and Labeling: There will be less need for manual
intervention because standard bills of lading, shipping labels, and carrier manifests will
be automatically produced; this includes even the specialized export documentation
required for overseas shipments. Paperwork is significantly reduced and the shipping
department will therefore be more efficient.
Online Shipping Inquiry: This gives instant shipping information access to anyone in
the company, from any location. Parcel shipments can be tracked and proof of delivery
quickly confirmed. A customer's transportation costs and performance can be analyzed,
thus helping the customer negotiate rates and improve service.
e) Exchanging Data is Critical
The underlying enabler of supply chain integration is the fast and timely exchange of
information between supply chain partners. This information may take the form of
transactional documents such as purchase orders, ship notices, and invoices, as well as
planning-related documents like demand forecasts, production plans and inventory
reports. It is this sharing and coordination of information and planning activities that can
enable cost reduction, value enhancement, and the execution of advanced collaborative
In the past, the cost and complexity of executing electronic data interchange (EDI)
transactions made this type of information exchange suitable for only the largest
corporations. The ubiquity of Internet-based communication tools now makes it possible
for organizations of all sizes to exchange information. However, challenges still exist and
being able to successfully deal with all the new technologies is one of these challenges.
The good news is that this data exchange challenge can be overcome; and the
opportunities become endless once companies are able to exchange information
efficiently with their suppliers, customers, and partners. Applications like vendor-
managed inventory (VMI), collaborative planning, e-procurement, shipment tracking and
tracing, electronic order management, and bill presentment and payment can be built
upon a core data exchange platform, enabling companies to reap true cost reduction
and service improvement within their organization.
II. SUPPLY CHAIN MANAGEMENT
Few business fads have peaked and plummeted with the rapidity of Internet technology,
in general, and B2B e-commerce and e-marketplaces, more specifically. Energized by
the success of consumer auction sites and by savings from early
e-procurement efforts, industry exchanges took off in mid-1998. By the end of the year
2000 more than 1,500 e-marketplaces had been announced. They ranged from
independent, multi-industry exchanges to vertical consortia led by industry giants, and
most were aimed at direct, strategic materials. Business plans for these e-marketplaces
often consisted of nothing more than a press release, but the visions were grandiose.
Then reality hit. As early as 1999, analysts began to warn that even the largest
industries could support only a handful of e-marketplaces. It increasingly became clear
that the path to value would be measured in years, not months. Helped along by the
bursting of the Internet bubble and a suspicion of all things B2B, the creation of e-
marketplaces slowed. Announcements of failures and consolidations replaced notices of
new launches. However, research firms that closely watch this sector are far from
writing off e-marketplaces or the B2B revolution. The Gartner Group recently revised its
near-term projections downward, but still expects Internet B2B commerce to reach $8.5
trillion worldwide by the year 2005.
There is one significant change in the new projections—today, analysts are saying that
much of this business, perhaps as much as 85%, will not go through public
marketplaces but instead will be conducted over private marketplaces that cross a wide
range of applications. Many say that there is little difference between the basic
technology employed in public and private marketplaces. The only real distinction
appears to be the model of participation. That model is one reason that private
marketplaces offer a faster path to value. One-to-many (1:M) networks are easier to
make work than the many-to-many (M:M) model of consortia exchanges that are
predicted to offer no more than auction, spot-buy, and excess inventory services for at
least the next two years. The real power of the private exchanges lies in streamlining
existing relationships, including those with resellers, distributors, and logistics providers.
a) Supply Chain Innovators
A recent magazine ad opened with the following headline, “Why lobster tastes better
from a Web-based store.” A major maritime seafood supplier has been in the business
of providing top-quality seafood to wholesalers and fine restaurants around the world
for more than 25 years. The company decided it needed to expand its market base and
begin offering its products to consumers to attract an untapped market via the Internet.
E-commerce also allowed this supplier to automate the order taking process that was
previously done manually, speeding up the process and wringing costs out of the
system. Through e-mails, ordering patterns, and other on-line comments, they are now
able to tailor their marketing strategy, to analyze marketing initiatives, and to react
almost instantly to shifting market demands.
Several third-party, for-hire carriers have launched customizable web pages that enable
customers to access real-time shipment information and customize their data output.
These websites also provide information on standards and pricing data as well as the
ability to inquire and track responses relating to freight bill invoicing or rating issues.
Users can also obtain rate quotes, proof of delivery, and cargo claims status reports.
One particular carrier set out to create personalized web pages where their customers
could access all the information that they needed to effectively manage their own
transportation operations. They have created over 1,000 personalized websites and
receive well over 4 million hits per month.
b) The Changing Face of Business
It was Ralph Waldo Emerson, the American philosopher, poet and essayist who wrote:
“If a man write a better book, preach a better sermon, or make a better mousetrap than
his neighbour, though he build his house in the woods, the world will make a beaten
path to his door.” Even if this were true a century and a half ago when Mr. Emerson
expressed his views, a manufacturer would build an extremely large inventory waiting
for today’s market to beat a path to her door, whether her facility were located in the
woods or in a modern industrial park. Today, a passive approach will not get a better
product to market.
Following the traditional approach, no matter how good the product, the first step is to
get the supply chain in order. Next, a business must hire a seasoned purchasing
manager to aggressively deal with material and service providers so that costs can be
brought in line. Then the enterprise must find dynamic sales and marketing personnel to
drive finished product into the hands of the consumer. Tweak the system every now and
then and watch while product flows out and profits flow in. That is basically how things
have worked in the past; businesses maintain heavily push-driven, sequential supply
chains, based on fundamentally adversarial relationships with their suppliers. Success
hinges on outmaneuvering, outperforming, and outwitting everyone perceived as
Although this may be the traditional approach, it’s not the only way. A lot of forward-
thinking companies are beginning to look at an approach that defies convention. The
new approach involves making allies of suppliers and customers alike, embracing them
in value nets instead of coercing them into precarious supply chains. Many consider this
the next evolution in the supply chain. This emerging value net business model starts
from the premise that a better product is no longer your ticket to success, but merely
your entry fee into the game. In fact, if a business puts a better product at the centre of
its efforts, this strategy demonstrates that the company has missed the point of the
value net approach altogether. The idea is to put customer priorities at the centre and
design the value net around them. Moreover, it is important to recognize that customer
priorities stem not from some amorphous group called the customers, but from
individuals that have unique needs and wants.
Where the traditional supply chain would push out a fixed line of one-size-fits-all items,
hoping that customers would buy them, the value net in contrast allows unique
customers to choose product or service attributes that they value the most; in effect, to
design their own product. Then the value net configures itself, its suppliers, its
manufacturing services, and its delivery capabilities to meet the needs of each customer
or at least of each customer segment. It differentiates itself to supply one-size-fits one
or customized products for each customer or customer grouping. It leverages operations
and customer choice to drive strategic advantage.
c) Why the Internet?
Now that the hype is over, it is time to look at what the Internet does or makes capable
from a practical point of view. In a nutshell, the Internet is a unique medium that allows
fast, two-way, secure communication. What makes the Internet different from electronic
data interchange (EDI), a technology that has been around for more than 20 years?
Essentially, the Internet performs the same function as EDI at a fraction of the cost.
Moreover, it has capabilities that EDI does not possess, namely, real-time versus batch
processing, transmission of unlimited data types including graphics, forecasts and
computer-aided design (CAD) drawings, and an open, non-proprietary network. If
carefully exploited, these Internet characteristics can lead to significant value creation.
To identify potential sources of value from B2B e-commerce, a good starting point is to
think of the number of ways in which your company interacts with both customers and
suppliers. These interactions can be categorized as one of the following: executing a
transaction; determining optimal prices; discovering available supply and unmet
demand; and supply chain planning for new and existing products. Thus, three distinct
categories emerge where B2B e-commerce can be applied to extract value:
• Reduced transaction charges
• Improved market efficiencies
• Enhanced supply chain benefits
Prior to making any investment in B2B e-commerce, a company has to identify the value
created and the effort required for implementation under each of these categories. The
relative position of these categories will not be the same for all firms but will vary based
on the supply chain strategy and competitive environment. A company must tailor e-
commerce implementation to support categories where the value created is high relative
to the cost of implementation.
Transaction changes are those costs incurred during the process of completing a
transaction. This includes the cost associated with handling proposals and quotations,
processing orders, staffing the procurement function, operating the call centre, and so
on. Traditional channels of communication such as phone and fax require high staffing
levels on both the buyer’s and the seller’s side. They also typically have high error rates
because of multiple data entries. As companies move towards electronic processes, error
rates decline, fewer staff are needed to process orders, and order placement speeds up,
leading to lower overall transaction costs.
Companies using EDI already have achieved many of the benefits in this category. Given
the high set-up cost and proprietary nature of EDI, however, they have only established
links with their largest suppliers and or customers. The Internet with its open access and
lower cost of participation allows all participants the opportunity to reduce transaction
charges. In addition, the Internet allows real-time processing and electronic data
retrieval and storage, which are essential components to reduce order cycle time.
Market efficiencies offer two avenues for a company to extract value: (1) the price
paid when soliciting bids from suppliers, and (2) the ability to match surplus capacity in
its supply chain with unmet demand. The Internet offers an opportunity in both
instances. The Internet facilitates the aggregation of orders across all divisions of a
company and makes it easier to bring in more potential suppliers for the bidding
process. This translates into a better price for the buyer because of increased volumes
and greater competition. B2B e-commerce also provides a mechanism by which a
company can move its demand across suppliers based on available capacity. In the past,
suppliers may have had idle capacity while original equipment manufacturers (OEMs),
with unfilled demand, were searching elsewhere. A better matching of available capacity
and demand provides value by improving the utilization of available capacity.
Supply chain activities include the flow of information, materials and finances between
different stages of a supply chain from suppliers to customers. When different stages of
the supply chain plan locally without sharing information, the result is the “bullwhip
effect”, whereby small fluctuations in consumer demand lead to large fluctuations at the
manufacturer and supplier. In some supply chains, orders to suppliers can fluctuate 10
to 20 times more than orders placed by the ultimate customer. The increased variability
leads to long supply lead times, excess capacity, high transportation and warehousing
costs, large inventories and dissatisfied customers.
B2B e-commerce can create value in a supply chain at two levels. First, by increasing
visibility across the supply chain, the Internet can help dampen the “bullwhip effect”.
The resulting decrease in variability allows a supply chain to improve customer service
while reducing costs. Second, the Internet can provide value from increased
collaboration. Collaboration is the ability of different stages of the supply chain to make
decisions on product design and introduction, pricing, production and distribution that
will allow all partners to participant. For example, a major North American retailer and
one of their key manufacturers increase visibility when the retailer shares point-of-sale
data. However, the partners only realize full value when they use this information, along
with capacity information at the manufacturer’s facilities to decide the best timing for
promotions and resulting production plans. If decisions are made independently, the
retailer may run the promotion at a time when production costs for the manufacturer
are the highest. Through collaboration, constraints on both sides are considered in
determining a schedule that maximizes profits.
The Internet also facilitates collaborative product design. This is a key capability planned
for the automotive industry exchange operated by major carmakers. Currently, CAD
drawings of product components are designed by engineers in one country, distributed
by courier to engineers in another country, and then finalized at a joint meeting in a
country somewhere in between! B2B e-commerce promises a “virtual product
workplace” where engineers can collaborate with suppliers and customers in real-time
from their desks, saving cost while speeding up product development cycles and time to
d) Growth of E-Marketplaces
Several financial institutions and telecommunication companies recently joined forces to
create one of Canada’s largest B2B electronic marketplaces. The proposed company will
offer business products, equipment and furniture, computer hardware and accessories.
They will also offer business services such as travel, personnel, promotional items, and
courier services in a quick and efficient manner at a reduced cost. The newly formed
company will produce value by combining procurement expertise and significant
purchasing volume with the advantages of the e-marketplace. This will allow participants
to save time and money and stay focused on their strategic priorities and core
competencies. The exchange will also create opportunities for suppliers to increase sales
by enabling new relationships between buyer and sellers.
Another Canadian example is a specialized e-commerce hub for the North American
agricultural community, bringing together grain producers and traders, processors, input
sellers, and brokers to transact day-to-day buying and selling online. Farmers enjoy
faster, easier price discovery, lower transaction costs and greater market reach, while
sellers, brokers, and retailers can use the power of the Internet to save time and money
as they reach new customers and markets through the rapidly growing world of B2B e-
commerce. This particular industry hub plans to expand in the near future to add both
cattle and hogs to their site.
There are specialty e-commerce hubs for almost all major industries throughout Canada
and North America including one that provides information and the ability to buy and
sell online for participants within the oil and gas sector. Another e-commerce hub offers
Internet-based crude oil trading using state-of-the-art technology to provide a secure
platform for transacting business anonymously in real-time with the assurance of
guaranteed commodity delivery and payment. These services are augmented by the
benefits of timely access to current and historical market indicators. This hub fosters a
liquid, efficient marketplace for buying and selling crude oil through instant access to a
wide market audience, price transparency, and lower processing and administration
e) E-Marketplaces’ Business Model Needs Change
Many industry experts predict that the majority of these B2B e-marketplaces will not
survive the “dot-com shakeout.” A major stumbling block stems from manufacturers that
were connected with suppliers through systems that created duplicate, rather than
complementary, distribution channels. Whether for coalitions of brick-and-mortar
companies or independent Net markets, this method fostered a lack of collaboration
among customers and channel partners. This lack of collaboration resulted in companies
having to manually input transactional data. The benefits of participating in public e-
marketplaces require precise systems integration.
Buyers, meanwhile, grappled with the lack of connectivity to their back-end systems.
Sure it was great to be able to search multiple suppliers for the lowest prices on goods
and services, but when it came time to close the deal, buyers, more frequently than not,
used the phone and/or fax to avoid paying e-market transaction fees. This points to the
flaw in the public e-marketplaces’ business model…most public marketplaces were not
able to move beyond the transaction simply because transaction fees formed the core of
their revenue streams.
f) The Rise of the Private E-Marketplace
Businesses are beginning to move to a more commonsense approach to using online
marketplaces. Suppliers are beginning to ask several questions that read like a checklist
• How can I make it easier for my customers to do business with me?
• How can I take care of my existing channel partners?
• How do I ensure my return on investment (ROI) for my technology investment?
• How do I increase my market capitalization over the long term?
The answers to these questions lead to one logical outcome; the rise and eventual
domination of private e-marketplaces. Private e-marketplaces (whether consortium-
based or centered around a single, large supplier) will dominate in the future because
they have the capacity to co-op existing channel partners (distributors, retailers, service
centres, sales representatives) rather than exclude them. Buyers will benefit from this
because they will receive greatly improved service before and after the sale, while
realizing the kinds of transactional efficiencies the public marketplace promised.
Ultimately, private e-marketplaces will dominate because they provide greater control
over branding, marketing, and transaction data that ensures long-term customer
satisfaction. This is not to say that public marketplaces will disappear. The public e-
marketplaces will become merely another sales channel for the suppliers, instead of the
one and only distribution channel.
III. DISTRIBUTION AND FULFILLMENT STRATEGIES
a) Determining Your Distribution Model by Volume
Before launching your e-commerce site, you should plan out how you’ll ship your
products to customers and fulfill the sale. There are a variety of factors to consider
when selecting the right shipping system, so that your customer orders arrive on time
and in one piece. The first step in this process is to consider the anticipated volume of
orders. Volume, to a great extent, will determine the best way to process your
Low Volume Distribution
If you anticipate a low volume of sales initially (1 to 3 orders a day), your distribution
process should be fairly easy:
• Hand-address labels
• Make a daily post office run to mail each purchase*
(*Note: International shipments require more due diligence)
Medium Volume Distribution
If you think you’ll be shipping more than 5 orders a day, you should seriously consider:
• Purchasing a label printer.
• Purchasing a postage meter to automatically weigh and generate postage stamps
• Starting an account with a shipping company to pick up your orders daily
• Consider a customs broker
High Volume Distribution
If you will be handling more than 25 orders a day, it’s a good idea to look at more
advanced shipping options. You may wish to integrate a high-volume model like drop
shipping, or you may wish to outsource your shipping to a third party altogether. If your
volume is especially high (hundreds of orders a day), you may need to have warehouse
space from which to stock and ship.
Be sure to offer
your customers a
shipping options. Choosing a Carrier
There are a variety of carriers that can provide ground or air delivery services for your
products. Shop around to see which carrier offers dependable services at a competitive
price. Regardless of your carrier of choice, be sure to offer your customers a variety of
shipping options, including ground (less expensive) or faster delivery (3-day or overnight
b) Choosing the Best Shipping Model
The next critical decision you have to make for your e-commerce site is which shipping
model will work best for your small business. There are three widely used e-commerce
shipping models – the drop shipping, inventory, and fulfillment house models. Each has
its advantages and disadvantages, and you may find that one model may be more
appropriate than the others based on your marketing strategy and product offering.
Drop Shipping Model
shipping, all With drop shipping, all product handling and shipping is done by the manufacturer.
product handling Orders made by customers are relayed to the manufacturer, thereby relieving the
and shipping is
done by the
e-commerce operator from the hassle of processing and shipping orders. The drop
manufacturer. shipping model, while very popular, does have key advantages and disadvantages:
• Low or non-existent inventory costs
• Extremely fast and efficient
• Manufacturer coordinates fairly complicated international documentation and
• Lower profit margins (usually in the single digits)
• Delayed customer purchases if the manufacturer has low stock
With the inventory model, you store your inventory in your own warehouse and ship
goods as your receive orders. An EDI (electronic data interchange) system may help
streamline your logistics. Advantages and disadvantages of this model include:
• Fast turnaround for each order
• Improved customer service if something goes wrong during shipping
• Better profit margins for each good sold
• Higher capital risks for goods that don’t sell and sit on the shelves
The fulfillment house model involves outsourcing virtually all of the work to a third-party
fulfillment house that will not only oversee shipping and handling, but will also take
customer orders, provide customer support, and in some instances, oversee your e-
Advantages and disadvantages of this model include:
• Very efficient for products with high margins
• Very inefficient and high risk for low-margin products
• Success of site will depend on success and quality of the fulfillment house
c) Inventory Control Management Systems
If you’re running a high-volume e-commerce site, you may want to invest in an
inventory control management system (ICS). There is a large selection of software-
based systems in the market to help you process your orders and monitor product
inventory levels efficiently. More advanced systems will provide inventory data analysis,
flagging increasing inventory demand, trends, and lagging inventory.
Most inventory control management systems will allow you to:
• Display an up-to-the-second count of all inventory
• Create work orders
• Create packing lists
• Review daily, weekly, or monthly transactions
• Automatically flag lagging inventory or goods that are low in stock
• Use eFax.com, a service that allows you to receive and send faxes via e-mail
Inventory control management systems can also generate inventory reports that:
• List sales and profit margins of individuals products
• Create pie or bar charts to display sales and profit margins
Client vs. Network-Based Inventory Control Systems (ICS)
Network-based inventory control systems are far more powerful than a client-based ICS.
While a client-based system can only be accessed by one user at a time, a networked-
based ICS can be accessed by many people at the same time. A network-based ICS
enables you to integrate controls between your head office and your inventory
warehouse. For example, some inventory management systems can enter or scan stock
barcodes, a very handy feature that would be used extensively in warehouses. Network-
based inventory systems can also allow you to better streamline your business by
delegating inventory monitoring responsibilities to other individuals in your business.
Again, much like the shipping model you select, your choice of an inventory control
management system will be influenced by the kind of e-business you have, the kinds of
goods you ship, and the volume of sales you either have or anticipate having.
d) Packing and Getting Your Product out the Door
There are some important things you’ll need to consider when shipping your product. It
is important to have a good understanding of appropriate packaging, labelling, and
It is important to Given that your product order could travel hundreds or even thousands of kilometres,
have a good there are some important packaging rules to follow to ensure your shipment arrives in
packaging, labeling, • The shipment should be in a very strong or reinforced container
• Avoid unnecessarily large containers – they increase shipping expenses
• Place heavy objects on the bottom, light objects on top
• Product should be braced and weight evenly distributed
• Include moisture-resistant fillers like Styrofoam pellets
• Properly label which end is up
• Palletize for efficiency and use straps or shrink wrap for extra protection
• Security is an issue, so you shouldn’t mark the outside of the container with info
that would make the package attractive to thieves
• Ensure proper labelling and placards for regulated goods
Securing your shipping package is of little use if you don’t properly label what you’re
shipping. Following these points will ensure that your shipment isn’t misdirected:
• If possible, use a printer to generate your labels
• If handwritten, write with large letters, preferably with moisture-proof ink
• Place and heavily secure the label where the package is opened (usually on top)
A commonly used shipping strategy is to apply the label to the front of the envelope
containing the product invoices and receipts, instead of sticking the documents inside
the container. You may wish to include additional promotional material or a personalized
thank-you letter to the customer.
e) Shipping to International Destinations
Shipping to international destinations can be a complex process with many rules and
regulations. International shipping often requires special documentation, and consular,
port, and handling fees. If you do choose to export products by yourself, there are
packaging and documentation procedures that need to be followed.
If you do not label your products appropriately, there is a very high chance that your
shipment will be delayed or worse, confiscated. Using waterproof ink, remember to label
your container with:
• A shipper’s mark
• Declarations, including country of origin, port of entry, and container weight and
• Clearly displayed caution messages (fragile, this side up, etc.)
• Clear indication of whether the shipment contains hazardous materials
• “Made in Canada” must also be permanently marked on all US-bound goods and
*Keep in mind as well that each country has its own unique labelling requirements.
documentation Improper documentation may result in your shipment being seized by Customs and
may result in monetary penalties. Depending on where you’re shipping, there are many documents
being seized that may need to be prepared, including:
by Customs. • A Consular Invoice, which is a document that describes the good as well as its value
• A Certificate of Origin, which indicates the product’s origin
• An Export License, or General Export Permit, which authorizes the export of goods,
and special “controlled” goods, to certain countries
• An Export Packing List (some countries require a detailed description of shipments)
• An Insurance Certificate, which protects the purchaser if the shipment is lost or
• An Export Declaration (B13A)
• Additional requirements may be required by the country to which you are exporting
You may consider using a freight forwarder, a company that is very familiar with
shipping costs, rules, and regulations and help get your products to their destination.
Using the services of a freight forwarder can come at a steep price, so it’s a good idea
to research freight forwarding costs before accepting international orders. You may
ultimately find that the costs associated with long distance shipping prevent you from
selling your products internationally, especially if your margins for each sale are thin.
What if Something Goes Wrong?
Shipping an order does carry certain obligations and protections for consumers. It is
important that you become familiar with the basic buyer and seller rights in the event
that a shipped good is damaged or lost. You should also consult with your freight
Your Shipping Rights
Look into the basic When you send your product out the door, you’ll be depending on a third-party carrier
rights of the seller to get your package to the customer. It is imperative that you research major carriers’
and the buyer in
the event of a policies (i.e., the “fine print” that outlines the terms and conditions on the Bill of Lading)
damaged or lost to see what they offer for compensation in the event that a package is damaged or
misplaced. Most reputable carriers offer the following to its customers:
• 100% refund of credit to the shipper if the package is not delivered
• Partial or full refund if the package is not delivered on time
Your Customer's Rights
While it is frustrating when a package gets lost during shipment, it is generally a good
business policy to either replace the damaged good or refund the customer’s money.
You may, however, place the onus of responsibility on the carrier by including a
“Damage” or “Lost Goods” clause in your company’s Terms of Sale. Under such a clause,
the onus will be placed on the customer to recoup their money from the carrier. Such a
policy, however, tends to be business unfriendly. Consider lost or damaged goods during
shipping an unfortunate cost of doing business.
Returns and Warranties
You should offer your customers substantive return and warranty protection to cover
lost or damaged goods. Ensure that you provide your customers with a detailed outline
of your policies, usually contained in a “shipping policy” or “return policy” document. It
is also a good idea to have these policies in separate, easy-to-find pages on your
website. Standard return policies include:
• For damaged shipments, offer customers at least 14 days after delivery to return
• For “dead on arrival” goods that don’t work after being opened, offer at least 14
• Products produced by another manufacturer should be covered by warranty
f) Quality Assurance and Consumer Protections
Without question, your site will succeed (or fail) based on how well you serve your
customers. Here are some quality assurance strategies to consider when you launch
your e-commerce site.
In some instances, your customers may wish to change their order before shipping.
Ensure that each customer order has a unique identifier like an order number that the
customer can use later through your website to change their order (such as product,
delivery date, etc.).
There may be instances where some of your products may not be in stock. It is
important that you offer your customers the opportunity to place an order in anticipation
of the product being available for shipment in the future. It is generally good practice to
only charge the customer when the product becomes available for shipping.
There are a variety of ways to offer your customers a way of tracking their order
shipment. You may want to integrate some simple options in order to improve your
• Automatically email the customer a shipping tracking number after the purchase is
• Give links to shipping carrier pages where the tracking number can be entered
• Offer the customer email support to help them track their order
• Offer the customer a toll-free number where they can call to find out the status of
To offer yourself (and your customers) protection, you may want to take out shipping
insurance. Such insurance usually covers loss, damage, or delay of cargo. There are
different types of insurance; however, so make sure you know what your insurance
policy covers. Depending on what type of transport you use, the risks and costs will
vary. International shipping, as you might expect, is more expensive than domestic
insurance. Usually you purchase shipping insurance through the carrier, and it covers
110% of the stated value of the good, as well as the shipping costs.
There is a great deal of information available to anyone who wants to find out more
about strategic channel intermediaries, Incoterms, duties, international warehousing,
and other tips at the export resources below:
• US Regulations for Canadian Exporters
• Export Documentation and Procedures
• World Customs Organization
• Canadian Trade Commissioner Service
• Canadian Society of Customs Brokers
• Canadian International Freight Forwarders Association